Tag Archives: labor

Raising the Minimum Retirement Age: How Do Workers Respond?

As populations are aging, governments around the world are looking for ways to stretch pension programs to accommodate large numbers of retirees. One option is to raise the minimum retirement age, as Germany did in 1999, upping the retirement age for women from 60 to 63. Economists Johannes Geyer and Clara Welteke analyze the impacts of this policy shift in a Journal of Human Resources preprint article. They wanted to know whether women over 60 changed their labor market status as a result of the reform. Did employed women stay in their jobs longer or use unemployment or disability benefits as a way to exit the labor market? Geyer and Welteke joined us to discuss their findings.

Why did you decide to pursue this topic?

Population aging is an enormous challenge for the financial sustainability of public pension systems of many OECD (Organisation for Economic Co-operation and Development) countries. Germany is facing a rapid increase in the old-age dependency ratio in the coming years. Already every second person in Germany is over 45 years old and every fifth person is over 66 years old. One way to increase the financial sustainability of the pay-as-you-go pension system is to increase the legal retirement age, thereby extending contribution periods whilst simultaneously decreasing pension expenditures. However, legal retirement age increases often have undesired distributional effects. Furthermore, workers may not be able or willing to work longer and may choose other exit routes from employment. Thus, it is of great importance to gain empirical evidence on the effects of pension reforms that increase retirement age thresholds. Our goal is to gain insights into the effects of this important question and inform policy makers.

What is one takeaway from this research that you’d like to communicate to policy makers?

The increase in the early retirement age for women in Germany resulted in a large employment increase in the affected age group (60- to 63-year-olds). One could conclude that the reform was a success and recommend similar measures for other countries and groups. However, the reform was successful in increasing employment because the labor market was in a good state and women were able to continue their employment. We also find that inactive and unemployed women remain longer in their respective status due to the reform. Another factor was the early announcement of the reform, which gave enough time to adjust career plans.

As a main takeaway, we recommend early retirement age increases as an effective tool to increase employment of the affected group, if labor market perspectives and the health of workers enable such an extension of their working life. Retirement age increases should be announced well in advance and those who are not able to work longer should be offered appropriate support, such as disability pension schemes.

What’s one question that emerged from your research that you’d like to follow up on, or that you hope someone else will explore in the future?

One of our results was that non-working women affected by the pension reform did not return to the labor market while employed women stayed in employment. In a follow-up project, we look at the distributional effects of the pension reform at the household level. More specifically, we wanted to know if the pension led to increased income inequality. Our results suggest that the distribution of available household income is not affected by the reform. One reason for this result is program substitution. The study is forthcoming in Labor Economics. In a current project, we look at health effects of the reform. We use administrative data from German health insurance that contain detailed information about individual diagnoses from medical practitioners’ records. Preliminary results suggest that the reform led to an increase of psychological symptoms.

What are some of the ways in which raising the retirement age could theoretically backfire on governments? Did you find any evidence that this is happening in the case of Germany?

The reform can be considered a success in retrospect. It did not lead to an increase in unemployment or large increases in disability pensions. However, the positive employment effect is strongly related to the good labor market performance at the time. Our results also show that women at this pre-retirement age do not react very flexibly to changing conditions. The results would have been different if Germany had experienced a large recession. Interestingly, this result is also found in other countries, like Australia and Austria. Therefore, governments should also invest more in labor market opportunities for older workers and develop better strategies to bring the older unemployed back to work.

Johannes Geyer is deputy head of the department of public economics at DIW Berlin. He earned his PhD in Economics in 2012. Between 2012 and 2016 he was a visiting professor at Humboldt-Universität Berlin, in addition to his work at the DIW Berlin. His research focuses on issues of social protection and demographic change. For this he uses empirical methods of microeconometrics and microsimulation.

Clara Welteke is an economist at the German Federal Ministry of Finance since April 2019. Her work focuses on pension provision and the sustainability of public finances. Previously, Clara was a researcher at the Public Economics Department and the Gender Economics Research Group at the DIW Berlin. Clara received her PhD from the Free University Berlin and the DIW Graduate Center in 2017. She holds a Bachelor’s degree in Philosophy & Economics from the University of Bayreuth and a Master’s degree in Econometrics and Mathematical Economics from the University of Amsterdam. After completing her Master’s degree, Clara worked as a consultant for the World Bank. During her doctoral studies, she worked for the OECD in Paris and the European Commission in Brussels.

Employers Look Closely at Your Address, Study Finds

Forthcoming Journal of Human Resources article finds evidence of distance-based discrimination in the hiring process

It’s a vicious cycle: those living in poverty are often unable to afford housing in city centers, putting them far from jobs. And, according to new research set to appear in The Journal of Human Resources, employers may discriminate against job seekers who have longer commutes. This could be one factor making it difficult for many Americans to escape poverty, posits David Phillips, the study’s author.

Phillips had a hunch that a person’s address might impact their chances of getting hired. To measure the effects of distance on an applicant’s performance, Phillips’s team sent 2,260 resumes in response to low-wage position openings (requiring only a high school education) in Washington, DC. The findings were clear: the farther away an applicant lived from the job location, the less likely they were to receive a callback from the employer. To clarify these results, Phillips wanted to determine whether employers looked more favorably on addresses from wealthier neighborhoods, even if they were far from the place of work. When resumes were sent from neighborhoods with similar levels of affluence but different commute lengths, Phillips found that applicants from the more distant neighborhoods received 14 percent fewer callbacks than applicants who lived closer to the job site, even though both applicants could be presumed to have the same socioeconomic status. Overall, Phillips determined that employers weigh an applicant’s distance from the job more heavily than their neighborhood’s affluence.

Phillips, a researcher at the University of Notre Dame, joined us to discuss the genesis of his interest in this topic and the larger implications of this study. To learn more, read the full Journal of Human Resources preprint article, listen to Phillips’s interview with NPR, and check out some of the press that this study has been receiving, here, here, and here.

How did you decide to pursue this topic?

During my dissertation, I spent some time working with a non-profit employment agency in Washington, DC. Most of their clients lived in less affluent neighborhoods in Southeast DC and transportation was a common question. I helped them run a pilot testing whether public transit subsidies could facilitate the job search process for people looking for low-wage jobs. It became clear that their clients were working with major transportation issues. At some point in that project, the idea came up that employers were probably aware of the transportation difficulties that people face and might respond to the address listed on the job application.

Why did it make sense to publish in The Journal of Human Resources?

The JHR has a great reputation for publishing rigorous work on the most important questions in empirical economics. As a result, it reaches a broad audience of applied economists. I thought the paper’s topic would be a good fit for that audience given increased attention to neighborhood effects and urban geography in the literature lately. The JHR also has a track record of publishing correspondence experiments. This paper fits with earlier work by David Neumark and Joanna Lahey that has shown up in the pages of The JHR.

How does the distance bias interact with other discrimination applicants might face—due to class, race, or gender, for example?

Discrimination based on commute distance could compound existing inequity. Other things equal, remote places are cheaper and thus attract people with other disadvantages. For example, on average a black person in DC lives one mile farther from jobs than a white person. Even if employers have a clear, rational, unbiased reason for avoiding people with long commutes, that penalty disproportionately falls on people who face other barriers.

What part of your findings surprised you the most, and why?

An interesting topic is one where you suspect an effect exists where other people think it doesn’t. So, I went into this betting employers care about addresses, and the response to distance was not a surprise to me. I was more surprised that employers do not respond much to neighborhood affluence. I expected employers to really penalize distant, poor neighborhoods both because of their remoteness and because of poverty. And I don’t find evidence of the latter despite the fact that the fake applicants come from very, very different neighborhoods in terms of affluence.

Photo by Matt Cashore/University of Notre Dame

David Phillips, PhD, works in the Wilson Sheehan Lab for Economic Opportunities (LEO) within the Department of Economics at the University of Notre Dame. His research focuses on poverty, particularly as it relates to low-wage labor markets, crime, housing, and transportation. His research has been published in high quality economics field journals and presented widely for policy audiences. Prior to coming to Notre Dame, David received a Bachelor’s degree from Butler University, earned a PhD in Economics from Georgetown University, and worked for 4 years at Hope College in Holland, Michigan.

Journal of Human Resources contributes to public policy debates

With this post, we launch an occasional series highlighting the University of Wisconsin Press journals program. UWP began publishing journals in the 1960s.

The Journal of Human Resources is among the most important journals in the field of microeconomics, with research relevant not only to scholars but to current debates in public policy. Findings and analysis published in JHR are often covered by major news organizations, including the New York Times, Washington Post, Huffington Post, NBC’s Today Show, CNBC, and National Public Radio. The journal’s scope includes the economics of labor, development, health, education, discrimination, and retirement.

Founded in 1965 at the University of Wisconsin–Madison, JHR continues to be housed within the Institute for Research on Poverty. JHR has had many accomplished editors over the years, including Sandra Black, who was appointed to President Barack Obama’s Council of Economic Advisors in July 2015. The current editor, David Figlio, is the director of the Institute for Policy Research at Northwestern University.

A past JHR contributor of particular interest to the University of Wisconsin–Madison is the current UW Chancellor, Rebecca Blank. Her work on poverty and public assistance programs appeared in four articles in JHR before she became Deputy and Acting Secretary of Commerce in the Obama administration.

Intriguing examples of research presented in JHR can be seen in two upcoming articles. The first, “It’s Just a Game: The Super Bowl and Low Birth Weight” by Duncan, Mansour, and Rees, interprets data from 1969 to 2004 for mothers whose home team played in the Super Bowl. Read the Washington Post’s coverage here. “The 9/11 Dust Cloud and Pregnancy Outcomes” by Currie and Schwandt also examines birth outcomes, in this case in relation to the events of 9/11. Their findings were recently cited by National Geographic.

Other topics recently covered in JHR included the effect of birth order on the development of a child, the unintended consequences of China’s One-Child policy, the influence of school nutrition programs on childhood obesity, the effects of age on hiring practices, and the effect of the minimum wage on employment practices.

Learn more about The Journal of Human Resources.

View a free online sample issue.